Market Efficiency Flashcards
Markets Operationally efficient
Markets that have
LOW TRADING COST
Markets Allocationally efficient
Capital is direct to its most productive uses
Informationally efficient
Securities prices reflect all information associated with fundamental value
What is the role of equities in financing a company’s assets
Purchased long live assets
Expansion to new areas
Three intensities of market efficiency
Weak
Semi strong
Strong
All of them assumes market prices reflects market data
Types of investments client
Hedger
Investor
Information- motivated trader
Investor
Investing in risky assets consistent with his level of risk aversion
Semi strong ME assumes:
Security prices rapidly reflects avaible info.
Passive strategies
(Cannot consistently achieve risk adjusted returns superior to a passively)
Overreaction Effect
Abrupt swift in the price
Look at the 3 year period
Momentum return effect
Short periods
Same directions of prices
Weak form of ME assumes;
Investor CANNOT have a normals return
With technical analysis
Deductin costs of transactions
PAST information of;
PRICES
TRADING VOLUME
What are the Behavior finance (4)
1 )Loss aversion
2 ) Overconfidence
3 ) Gamblers fallacy (got right once, always right)
4 ) Information cascade (mimic)
What a momentum pattern suggests?
That past patterns exits and can be exploited by using historical price information
What is the reflect of behavior theories of loss aversion in the markets?
Does Risk is symmetrical?
Overreaction of the markets
Risk is not symmetrical
What violates the semi efficient market also violates de strong one?
Yes
